The housing market is coming off one of its most challenging years since the financial crisis, but signs of a turnaround are emerging early in 2023, according to Redfin (RDFN) CEO Glenn Kelman.
"The market could still easily falter," Kelman tweeted this week. "But housing in January has been stronger than anyone could’ve hoped."
As part of a lengthy Twitter thread posted Wednesday, Kelman acknowledged that in March of 2022, the housing market was "cresting" amid market volatility, still-rising inflation, and war.
At the same time, the Federal Reserve boosted interest rates by a quarter-point, the first time in three years, in an effort to slow high inflation.
Following the Fed's moves to raise rates — which totaled 4.25% worth of interest rate increases by the time 2022 wrapped up — two years of extreme bidding wars, packed open houses, and sky-high prices finally started to roll over as the housing market cooled.
Sales of existing homes fell 3.4% between April and May, the weakest reading since June 2020, down 8.6% compared to May 2021, according to the National Association of Realtors (NAR). Meanwhile, sales of newly constructed homes dropped 16.6% in April as higher mortgage rates crimped the enthusiasm of buyers, U.S. Census Bureau data showed.
Higher rates challenged both homebuyers, who had to cope with hefty monthly payments, and sellers, who saw demand drop and offers fall off.
Redfin said during the second week of November, the number of people touring their first home with an agent dropped 33% annually. Other data showed the number of offers on the table and the number of people scheduling meetings to list their homes in November was down 35%.
"The market worsened each month through November. Now we believe the market, while still fragile, is recovering," Kelman stated.
Kelman's observations came just a day before the latest data from Freddie Mac showed mortgage rates fell again last week. The average rate on a 30-year fixed rate mortgage is now 6.13%, according to Freddie Mac. That's a full percentage point lower than its peak of 7.08% in early November.
In January, the number of people touring their first home with an agent was down 19% from last year, about half the drop seen as of November, Kelman noted.
And the number of people making offers for homes has also showed signs of stabilizing, with offers down 27% from 2022 in January of this year, better than the 35% drop from the prior year seen in November.
An inventory shortage has been one of the biggest drivers of higher home prices during the pandemic. Demand was booming given the accessibility of remote work, but there weren't enough homes on the market for those who wanted to buy.
There were 970,000 unsold homes on the market at the end of December, down 13.4% from the previous month, according to NAR.
And though this figure marked a 10.2% increase over the prior year, Kelman notes the years-long lack of inventory continues to weigh on the housing market.
"What has been different about this downturn is that inventory never really rose," Kelman said, noting inventory is "at roughly half the levels it was in 2016."
In some markets, however, inventory is showing early signs of turning around, with data from Realtor.com showing there were 54.7% more active listings on the market compared to a year earlier in December. This increase was largely driven by gains in pandemic hotspots like Raleigh, NC, Nashville, TN, and Austin, TX, which saw a 200%-plus surge in inventory on an annual basis last month.
Still, these localized inventory improvements aren't enough to hold off the return of bidding wars as demand improves, according to Kelman.
For example, a home in Sarasota, Florida got 23 offers, while a property in a Seattle suburb listed for $1.4 million, got 12 offers, and the eventual buyer paid $155,000 over asking price with no contingencies.
In other markets like Palm Beach, Florida, agents are seeing a growing number of New York, New Jersey, and West Coast residents flocking to the Southeast.
"Some of us saw this coming, but we didn't see how fast," said Shoshana Godwin, a Redfin agent. "We whiplashed 6 months ago, and now we’re whiplashing back. Last month, we were telling clients, 'take your time.' No more."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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